Matters:
The company released its 2023 annual report, achieving annual revenue of 7.825 billion yuan (-23.70%), and achieved revenue of 5.405 billion yuan (+24.37%) after excluding large orders; realized net profit of 2,269 billion yuan (-31.28%), and net profit after deducting non-return to mother of 2.104 billion yuan (-34.87%). Basically as expected.
Dividend plan: It is proposed to pay 18 yuan (tax included) for every 10 shares.
Ping An's point of view:
2023: The implementation of the COVID-19 big order was completed, and relatively rapid growth was achieved in a difficult environment. In terms of segmentation, small-molecule CDMO business revenue was 6.620 billion yuan, 4.200 billion yuan after excluding large orders, +25.60%. Core MNC customers are the most stable driving force in the current difficult environment, supporting the company's sustainable growth; emerging business revenue was 1,199 billion yuan, +20.42% year over year. Among them, small nucleic acids, preparations, clinical CRO, large molecule antibody CDMO, etc. are mostly domestic businesses. Order demand and profit margin levels have all been affected to a certain extent by the external environment. .
2024: MNC is the core, and the business continues to grow rapidly. There is some pressure on the profit side. According to the company's guidelines, revenue is expected to increase by 15% to 25% after deducting large orders in 24 years. Its core driving force still comes from overseas MNC giants, and overseas biotech companies are also expected to contribute a certain amount of incremental growth in the gradual recovery. As of the reporting date, the company had ongoing orders of US$874 million, and the company's performance guidance order coverage was at a high level.
In terms of profit margins, there was no support for large orders in 24, and the company needed to address some short-term pressures on gross profit margins and expense ratios. The unit output value and equipment turnover efficiency of conventional business are lower than large orders, and domestic price competition still exists. On the cost side, the fee rate will increase if there are no large orders to share the costs. In summary, we estimate that the 24-year net interest rate may be slightly lower than the historical level.
Abundant capital and leading technology. Back-end project promotion helped the company return to high growth and large orders as soon as possible, providing the company with a large amount of cash flow (over 9 billion yuan in cash+transactional financial assets at the end of '23). Ample cash guarantees that the company can operate smoothly against the trend, and supports strategic work such as new technology research and development and overseas production capacity construction. The company is keen to explore emerging pharmaceutical fields and actively implement large-scale applications of new technologies. New technologies or new field layouts such as continuous reactions, small nucleic acids, and peptides have blossomed in recent years, helping the company to stay at the cutting edge of the industry. Today's investment will also translate into the company's competitiveness in the near future.
According to on-hand orders, the company had 28 PPQ projects in '24, an increase of 40% over '23. Considering that there is a high probability that the PPQ project will be converted into a commercial order after 1 year, we estimate that if there are no worse changes in the external environment, the company can successfully pass the cutoff period in 2025.
Maintain a “Highly Recommended” rating. According to the recent industry environment and the company's on-hand orders, 2024-2025 was adjusted and the 2026 profit forecast was added. Net profit returned to mother for the next 3 years was 12.55, 16.72, and 2,140 billion yuan (previously estimated profit of 2024-2025 was 20.00 billion yuan and 2,589 billion yuan). Although the company is under short-term performance pressure due to large order fluctuations and overall market environment factors, the pharmaceutical investment and financing environment has initially shown an improvement trend. Coupled with the company's core capabilities and strong guarantees for subsequent orders, we continue to be optimistic about its future development and maintain a “highly recommended” rating.
Risk warning: 1) Uncertainty in overseas markets; 2) Global pharmaceutical innovation investment and outsourcing ratio falls short of expectations; 2) CDMO orders cannot be released smoothly due to failure in drug development or marketing sales; 3) In the event of production accidents, warning letters from regulators, or other situations that cannot meet customer needs, companies may lose orders and even customers; 4) Exchange rate fluctuations may cause exchange gains and losses.